Nonprofit Board Responsibilities: Duties, Roles and Policies

The treasurer of a youth soccer association hasn't seen a bank statement in six months because "the bookkeeper handles it." At the same meeting, a director whose company builds websites offers to redo the association's site for $9,500, and the board approves it on the spot. Neither moment feels dramatic. Both are exactly the situations that nonprofit board responsibilities exist to handle.

Board responsibilities fall into three layers. First, every director owes the organization legal duties of care, loyalty and obedience. Second, the board as a whole is responsible for direction, financial oversight, leadership, compliance and resources. Third, the board needs a few written policies, above all a conflict-of-interest policy, and officers who know their roles. This guide covers all three, including the governance questions the IRS asks on Form 990.

How to size, recruit and orient a board is a separate topic, covered in our guide to building a nonprofit board of directors. Here we focus on what directors must do once they are seated.

The Three Legal Duties Every Director Owes

Directors' duties come mainly from state law, and courts use them to judge whether a director acted properly. Washington's guide for charity and nonprofit board service, published by the state's secretary of state and attorney general, describes them as the duties of care, loyalty and obedience. Other states use similar language, sometimes with extra duties added, so read your own attorney general's guidance as well.

Duty of care

The duty of care is about attention and judgment. In Washington's statute, directors must act with the care an ordinarily prudent person in a like position would use under similar circumstances. In practice, that means:

• Attending meetings and reading materials before you arrive.
• Asking questions until you understand financial statements and major proposals.
• Relying on experts, such as a CPA or attorney, when it is reasonable to do so.
• Supervising committees rather than assuming they have things covered. Some states, such as Washington and New York, say plainly that delegating to a committee does not by itself satisfy a director's duties.

Duty of loyalty

The duty of loyalty means putting the organization's interests ahead of your own. Directors disclose conflicts of interest, step out of decisions where they have a personal financial stake, never use confidential information for personal gain, and don't take a business opportunity that belongs to the organization.

Duty of obedience

The duty of obedience means staying faithful to the mission, the governing documents and the law. The board makes sure the organization does what its articles and bylaws say it exists to do, uses restricted gifts only as the donor restricted them, holds meetings with proper notice, and files what it must file on time.

Core Responsibilities of the Board as a Whole

Individual duties describe how directors behave. The board's collective responsibilities describe what it must get done.

1. Set direction

The board adopts and periodically reviews the mission and approves the strategic plan that turns it into priorities. It doesn't write every program plan, but it decides what success means and checks progress. Our guide to nonprofit strategic planning covers the process.

2. Oversee the money

Financial oversight is where a board's attention protects the organization most directly. At a minimum, the board should:

• Approve an annual budget before the fiscal year starts.
• Review financial statements at every regular meeting, comparing actual results with the budget.
• Make sure basic internal controls exist, for example that the person who pays bills is not the only person who reconciles the bank account.
• Decide whether to obtain an audit or review. Some state charity regulators and funders require one above certain revenue levels, so check your state's rules.
• Investigate warnings of theft or mismanagement promptly. Form 990 asks organizations to report a significant diversion of assets, defined as more than the lesser of 5% of gross receipts, 5% of total assets or $250,000.

When the treasurer can open current bank balances, receivables and payment status without asking the bookkeeper for a spreadsheet, oversight gets easier. campai's finances and accounting tools keep bank accounts, invoices and receivables in one place for that reason.

3. Hire, support and evaluate the chief executive

If you have an executive director, the board hires them, sets goals, evaluates performance at least once a year and decides compensation. The board does not manage staff below the executive; that is the executive's job.

Compensation deserves a documented process. Form 990, Part VI, line 15 asks whether the process for setting the top executive's pay included three elements: approval by the board or a committee without conflicted members, comparability data for similar positions at similar organizations, and contemporaneous documentation of the decision. Those are also the elements of the "rebuttable presumption of reasonableness" the IRS encourages charities to use.

The stakes are real. For applicable tax-exempt organizations, including 501(c)(3) public charities, the IRS can impose excise taxes on excess benefit transactions: 25% of the excess benefit on the insider who received it and, in some cases, 10% on directors or managers who knowingly approved it, up to $20,000 per transaction.

4. Make sure the organization complies with the law

The board doesn't have to prepare every filing, but it must make sure each one happens. A typical list:

• The annual IRS return. Organizations with gross receipts normally of $50,000 or less can usually file the Form 990-N e-Postcard; those with gross receipts under $200,000 and total assets under $500,000 can file Form 990-EZ; larger organizations file the full Form 990. These thresholds come from the IRS's overview of which forms exempt organizations file. An organization that doesn't file for three consecutive years automatically loses its tax-exempt status.
• State filings, such as the annual report to the secretary of state and charitable solicitation registration where your state requires it.
• Employment taxes and payroll, if you have staff. Washington's board guide warns that the IRS may hold board members personally liable if the organization violates federal tax law, most likely through a failure to handle mandatory payroll withholding.
• Insurance that fits your activities, which may include general liability and directors and officers (D&O) coverage.

5. Secure adequate resources

Boards make sure the organization has the money and people to carry out its plans. That usually includes personal giving at a level meaningful to each director, opening doors to donors, sponsors and partners, and supporting fundraising events. Our guide to a nonprofit fundraising plan shows how to give each director a realistic role.

6. Represent the organization

Directors are ambassadors. They explain the mission in their networks, listen to members and the community, and bring that feedback back to the board. They speak for the organization publicly only when the board or chair has authorized them to.

7. Govern the board itself

The board recruits and orients its own members, evaluates its performance and plans for leadership transitions. Our guide to board succession planning covers the last of these in detail.

Board vs. Staff: Who Does What

Many board conflicts start with unclear lines. Use a table like this one, adapted to your organization, and review it when a new executive or chair starts.

In an all-volunteer organization, directors often do both columns. That works when meetings separate the two: "As the board, we approve the event budget. Now, as the event volunteers, who's ordering tables?"

Conflict-of-Interest Policies That Actually Work

A conflict of interest arises when someone with authority, such as a director, officer or key employee, could benefit financially from a decision they are part of, directly or through family members or businesses they're closely associated with. That is close to how the Form 990 instructions describe it.

What the law and the IRS ask for

• Federal tax law: The Form 1023 instructions state that adopting a conflict-of-interest policy is not required to obtain tax-exempt status, and they include a sample policy in Appendix A that you can adapt.
• Form 990: Part VI, lines 12a to 12c ask whether you have a written conflict-of-interest policy, whether officers, directors, trustees and key employees must disclose interests that could give rise to conflicts every year, and whether you regularly and consistently monitor compliance.
• State law: Some states go further. New York, for example, requires its nonprofit corporations to adopt a conflict-of-interest policy with minimum provisions, including recusal and documentation in the minutes, and requires directors to submit a written disclosure statement before their first election and every year after.

How the process should run

1. Annual disclosure. Every director and officer completes a short written statement each year listing their roles with other organizations and businesses that do business with yours.
2. Disclosure in the moment. When a matter comes up that involves a director's interest, the director discloses it before discussion starts.
3. Recusal. The director may answer factual questions, then leaves the room or the video call for discussion and the vote.
4. Decision by disinterested directors. The rest of the board decides whether the transaction is fair and in the organization's best interest, ideally after comparing alternatives.
5. Minutes. The minutes record the disclosure, the recusal, the alternatives considered and the vote.

Here is how that would have changed the opening example. The director discloses that his company bid on the website. He answers two questions about the scope, then steps out. The board compares his $9,500 bid with two others for $11,200 and $12,800, confirms the scope is comparable, and approves his bid with him absent. The minutes record all of it. The outcome may be the same, but now the decision is defensible.

Annual disclosure statement (template)

Annual conflict-of-interest disclosure: [Organization], [Year]

Name and board or staff role: ______

1. Organizations where I or a family member serve as an officer, director, trustee, partner, owner or employee, and which do business with or seek funding from [Organization]: ______
2. Transactions or proposed transactions with [Organization] in which I or a family member have a financial interest: ______
3. Other relationships that could reasonably appear to influence my judgment: ______

I have read the conflict-of-interest policy, I agree to follow it, and I will update this statement if my situation changes.

Signature: ______ Date: ______

Keep signed statements with each director's record and set a reminder for the next annual round. Your secretary, or whoever the policy names, should review them before the first board meeting of the year.

Form 990 Governance Questions Your Board Should Be Ready to Answer

Every organization filing the full Form 990 must complete Part VI, "Governance, Management, and Disclosure." The instructions say federal tax law generally does not mandate these practices, but the IRS considers them to improve compliance, and each answer becomes public. Organizations that file Form 990-EZ or the 990-N e-Postcard don't answer these questions, but they still make a useful checklist.

Good minutes support several of these answers at once. Our guide to meeting minutes shows what to record.

Officer Roles and Responsibilities

Officers carry specific duties on top of their duties as directors. Your state law may require certain offices; Washington, for example, requires a president, a secretary and a treasurer, and the same person can't be both president and secretary. Your bylaws then define what each officer does.

Large boards sometimes give the officers decision-making authority between meetings through an executive committee. That authority has legal limits and must be reported to the full board.

An Annual Governance Calendar

Spreading responsibilities across the year keeps any single meeting from becoming a marathon. This sample assumes a calendar fiscal year, a calendar-year Form 990 due May 15, and quarterly board meetings.

Frequently Asked Questions

What are the three fiduciary duties of a nonprofit board?

They are the duty of care (pay attention and use sound judgment), the duty of loyalty (put the organization's interests first and manage conflicts) and the duty of obedience (follow the mission, the governing documents and the law). They come from state law, so your state's wording may differ slightly.

Can nonprofit board members be held personally liable?

Yes, in some situations. The federal Volunteer Protection Act limits personal liability for uncompensated volunteers, including directors, acting within the scope of their role, but it doesn't cover willful or criminal misconduct or gross negligence, among other exceptions, and it doesn't protect the organization itself. Some states, such as Washington, add their own protections for volunteer directors, and the IRS can pursue directors over certain unpaid payroll taxes. Indemnification provisions in your bylaws and D&O insurance add protection; ask a qualified attorney about your state.

Does the IRS require a conflict-of-interest policy?

Not to obtain tax-exempt status. However, Form 990 asks whether you have one and how you monitor it, and some states, such as New York, require one by law. Adopting one is a sensible default, and the IRS sample in the Form 1023 instructions is a practical starting point.

Does the board have to review the Form 990?

Federal tax law doesn't require the board to review it, but Form 990 asks whether a complete copy went to every voting director before filing and asks you to describe any review process. Circulating the return and inviting questions is a simple, visible governance practice.

What is the difference between the board chair and the executive director?

The chair leads the board, which governs. The executive director leads the staff, which manages. The executive reports to the board as a whole, not to the chair personally, and the chair doesn't direct staff.

How much time does serving on a nonprofit board take?

It varies by organization and role. A director at a small nonprofit with quarterly meetings and one committee might spend a few hours a month, while officers and directors of all-volunteer groups often spend much more. State the expected time in the board job description before anyone joins.

Next Steps

Turn these responsibilities into routines your board can sustain:

1. Share the duties table at your next board meeting and ask each director where the board is strongest and weakest.
2. Adopt or update your conflict-of-interest policy and run the annual disclosure round this quarter.
3. Check the Form 990, Part VI questions against your current practices, even if you file a shorter return.
4. Write a board vs. staff table with your executive director and approve it as a working agreement.
5. Put the governance calendar on next year's meeting schedule so compensation, budget, Form 990 review and self-assessment each have a set date.

For charities that also manage donors, members and events, our solutions for charities show how campai keeps those records together so the board sees one consistent picture.